For some, new hoops to jump for a mortgage

This story contains corrected material, published Oct. 12, 2012.

If you're looking to buy a condo or are self-employed, qualifying for a mortgage may soon get more complicated.

Fannie Mae, the mortgage financier that sets the standards for a large portion of the home loan market, is changing a number of its requirements Oct. 20. Among other things, certain condo buyers might have to come up with a larger down payment, and the homeowners association may have to provide paperwork about its financials. And if you run your own business, you may have to dredge up more tax information.

Andrew  J. Wilson, Fannie Mae's director of media and external relations, explained some of the changes:

Q: What's happening for condo buyers?

A: We're bringing out a new version of our automated underwriting system, called Desktop Underwriter. These rules apply to lenders who use that system to qualify borrowers for loans under Fannie Mae guidelines. Currently, if you're buying a condo with less than 10 percent down, you'll have to fill out a questionnaire about the homeowners association's financials and provide information about its reserves. In the new rules, you'll have to do this if you're putting less than 20 percent down.

Q: What's Fannie Mae looking for from the homeowners association (HOA)?

A: It's asking these things to have greater confidence in the stability of the homeowners association. The lender would be expected to review the (HOA's) budget, including individual line items, income and expenses. This full review is to determine whether or not replacement reserves can be funded and if insurance deductibles are funded. (The broader requirement) speaks to making sure the homeowner's association has the ability to maintain and insure the property — and whether or not we would want to be buying the loans.

Q: What's changing for self-employed borrowers?

A: They're going to have to supply two years of tax returns instead of one. Underwriters will consider income from an average that's drawn from those two years. The requirement that a borrower has to have been in business for two years isn't changing.

Q: From an observer's point of view, Fannie Mae (and its rival, Freddie Mac) have been tightening their lending standards regularly over the last few years, ever since the housing market downturn. Might some borrowers argue that these tougher standards are stifling sales and keeping the market from recovering?

A: The reason we've changed the rules is that we think it's an appropriate level of documentation to ensure that the borrower can afford the loan. That's always what we're after — we want to make sure that the lenders are making loans that are appropriate, affordable and sustainable when the loans are sold to Fannie Mae. If a lender wants to make a loan that doesn't meet our conforming standards (requirements that would allow Fannie Mae to consider purchasing the mortgage from the lender), that's fine, but they can't (in turn) sell it to Fannie Mae.

Do we want the housing market to recover? Of course, absolutely. We want people who can afford loans to be able to get them. The question is, what are the appropriate and sustainable underwriting requirements that should be put in place? Clearly, there was a deterioration across the entire mortgage industry that led to the housing crisis. So, we want the standards to be sustainable across the long haul, that loans that are made today have a greater likelihood of performing over the long run.

Keep in mind that in some cases, we have made standards that would be proverbially called looser with this Oct. 20 change. For example, if you're purchasing a two-unit building that you plan to live in, the maximum loan-to-value ratios will be increasing from 80 to 85 percent. There's a little more flex on those two-unit properties, and we think some additional flex on those is appropriate. This is about looking where we can make those tweaks that are appropriate.

HousingNews@comcast.net

Twitter @maryumberger

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